SEC suing Henderson firm for fraud

David Strow

Wednesday, Sept. 29, 1999 | 11:14 a.m.

Tarkenton sacked by SEC

The suit against CEC Industries of Henderson was part of a nationwide sweep Tuesday against inflated earnings and other alleged accounting misconduct.

Hall of Fame quarterback Fran Tarkenton was among 68 people and companies sued by the SEC. Tarkenton, the former head of a computer software company, agreed to settle by paying a $100,000 fine without admitting or denying wrongdoing, the SEC said.

The Securities and Exchange Commission said it filed suit against a publicly traded Henderson company, claiming it misstated assets and revenues in the last two years it filed public financial reports.

Tuesday's lawsuit, filed in federal court in Washington, D.C., is an attempt to force CEC Industries Corp. to restate all earnings and balance sheets filed in 1996 and 1997. The SEC also wants a court order forcing the company to resume filing annual and quarterly reports; CEC hasn't filed any earnings reports since mid-1998.

"We think it was a fraud, top to bottom," said Greg Bruch, assistant director of the SEC's division of enforcement. "This company has no core business, no sources of recurring revenue."

CEC was delisted from the NASDAQ exchange in 1995, but still trades over-the-counter. It is now quoted at just over 3 cents per share. Its last quarterly reports in 1998 were not independently audited.

The SEC lawsuit also targeted Gerald and Marie Levine, who both have served as president of the company. The Levines are married. The SEC is seeking an injunction that would ban the Levines from ever again serving as officers or directors of a publicly traded company, as well as unspecified monetary damages.

Levine resigned as president of CEC in February 1998, turning over control of the company to his wife, who was chief financial officer. The SEC believes Gerald Levine is still involved in company operations.

"We have tried to speak with the Levines, but they refuse to speak with us," Bruch said.

The Levines could not be reached for comment. Their Los Angeles-based attorney, however, vowed to fight the SEC's charges.

"Although I have not had an opportunity to review the SEC filing, based upon my understanding of the matter, any claims asserted would be without merit," said Larry Washor. "CEC and the Levines intend to defend this matter vigorously."

Washor declined further comment.

The last financial documents filed by CEC in 1998 say the company operated four widely divergent businesses. It claimed operations in carbon furnace manufacturing, real estate development, mineral rights development and art collections. It claimed among its holdings a 25 percent ownership in Victory Village, a 320-unit affordable housing project in Henderson.

The company had apparently attempted a number of acquisitions since 1995, but most fell through.

The SEC claims that most of the assets listed by CEC were given values far above their fair market worth. In the company's last financial statement, it listed assets of $4.84 million as of Dec. 31, 1997.

In one case cited by the commission, the company listed $1.75 million in artwork as assets. The artwork was created by Sky Jones, a Fort Worth, Texas, artist. In the filing, CEC claimed the work had been independently appraised, and that Jones' art could be found in the private collection of Queen Elizabeth of England. But the SEC challenged this valuation, saying that Jones didn't have the stature in the art world necessary to command such valuations.

The SEC also challenged CEC's $800,000 valuation of land held in Tennessee. CEC claimed the land held significant gas deposits, but the SEC alleges the land is virtually worthless.

In a separate case, the company valued shares of stock it owned in a company called "Synfuel Technologies" at values as high as $2.7 million. The only publicly traded company with such a name is Ramex Synfuels International, an inactive Spokane, Wash.-based company that had been attempting to develop methods of extracting oil and gas products from oil-based shale rock. Ramex Synfuels' stock never traded higher than 6 cents per share; however, CEC said its Synfuel shares were freely trading, and carried a market value of $20 per share.

The Synfuel stock was acquired in exchange for a 17.44-acre vacant lot in Las Vegas sold by the company in 1997. The SEC said the company used its $20 per share claimed value for the 165,876 shares it acquired in the deal, then reported it as revenue from continuing operations. In all, the SEC alleges that $5 million of its $5.9 million in reported 1997 revenues came from the Synfuel land transaction -- and that none of those revenues were ever in cash. In a similar case, the SEC claimed CEC sold another Las Vegas land parcel and reported it as revenues, but did not remove the revenues from its books after the sale fell through.